EXECUTIVE SUMMARY

BACKGROUND

The Valencia City Water District (VCWD) was formed pursuant to Presidential
Decree No. 198, as amended and was issued with Conditional Certificate of Conformance
(CCC) No. 141 on October 24, 1980.

The operations of the district is managed by a General Manager and assisted by four
division managers. The district has a total complement of 123 employees, 96 of which are
regular and 27 are under job order status. The Board of Directors which is composed of five
members is the policy-making body of the district.

VCWD was originally categorized as small water district in 1980 and was reclassified
under big category in CY 2003. As of December 31, 2012, the district was recategorized as
big water district under Category B based on the implementing guidelines on the Revised
Local Water District on Categorization, Re-categorization and other Related Matters (LWD –
MaCRO).

Financial Highlights

The comparative figures for CY 2012 and 2011 financial data showed an increase of the
district assets, liabilities, equity, gross income, and operating expenses, as summarized below:

Particulars 2012 2011 Increase

Total Assets 138,338,283.79 129,115,342.08 9,222,941.71

Total Liabilities 45,849,116.03 41,380,684.19 4,468,431.84

Total Equity 92,489,167.76 87,734,657.89 4,754,509.87

Gross Income 85,127,365.70 84,282,362.03 845,003.67

Operating Expenses 68,618,419.99 62,746,091.72 5,872,328.27

Net Income 5,525,091.35 12,208,150.58 (6,683,059.23)

Operational Highlights

As of December 31, 2012, the district is serving a population of 95,364. It has total service
connections of 15,894 of which 14,577 are active and metered while 14,500 connections are
billed. Total water sales billed was computed at P82,714,109.17.91 and collected a total of
P81,760,262.90, thereby, registering a collection efficiency of 98% as at year-end.

Water production as of December 31, 2012 reached 4,157,485 cubic meters of which 62.85%
or 2,682,253.56 cubic meters was the computed total accounted water.

SCOPE OF AUDIT

An audit examination was conducted on the CY 2012 accounts and operations of Valencia
City Water District (VCWD), Valencia City, Bukidnon pursuant to COA Office Order No.
2013-086 dated January 11, 2013.

The objectives of the audit are:

1. To ascertain propriety of financial transactions and compliance of the district as to

existing laws, rules and regulations;

2. To ascertain the accuracy of financial records and reports of the district;

3. To ascertain the fairness of presentation of the financial statements of MWD for CY

2012.

INDEPENDENT AUDITOR’S REPORT ON THE FINANCIAL STATEMENT

A qualified opinion was rendered on the financial statements due to overstatement of book
balances of Utility Plant In Service and Accumulated Depreciation accounts by P16.741
million and P9.915 million, respectively, as there was inclusion of water meters which are
small enough to be considered as property and equipment totaling P15.434 million and
unserviceable properties amounting to P1.308 million. Furthermore, land and land rights
totaling P4,588,343.93 were not supported with legal documents of ownership, thus, claims of
ownership could not be validated; also, there was an understatement of both Assets and
Equity accounts due to unrecorded land and land rights totaling P623,500.00 and donated
lands of undetermined value.
SUMMARY OF SIGNIFICANT AUDIT FINDINGS AND RECOMMENDATIONS

1. The book balances of Utility Plant In Service and Accumulated Depreciation

accounts were overstated by P16.741 million and P9.915 million, respectively due
to inclusion of water meters which are small enough to be considered as property
and equipment and unserviceable properties

Direct the Accounting Section to exclude the water meters totaling P15.434 million
from the UPIS account. Effect necessary adjustments to the UPIS account and the
related accounts to correct the overstatement.

Create a Disposal Committee to undertake the disposal of the unserviceable properties.

Direct the Property Officer to prepare the Inventory and Inspection Report of
Unserviceable Properties as basis in the disposal of the unserviceable properties and
equipment and of dropping the same from the books of accounts in accordance with the
above-cited rules and regulations.

2. Land and land rights totaling P4,588,343.93 were not supported with legal
documents of ownership

Facilitate the preparation of documentary requirements to secure the transfer certificate

of titles (TCT) of purchased lots to support claims of ownership. The Land and Land
Rights recorded in the books which were not supported with TCT and other legal
documents of ownership should be properly disclosed in the notes to financial
statements.

3. Land and land rights totaling P623,500.00 and donated lands of undetermined
value were not recorded in the books of accounts of the district, thus resulting to
the understatement of both Assets and Equity accounts

Record the cost of the purchased lots in the amount of P623,500.00. Conduct an
appraisal of the donated lots and record the same at appraised value.

4. Payments for the purchase of various parcels of land totalling P1,435,000.00 were
not supported with the required documents as prescribed under COA Circular
No. 2012-001 and Presidential Decree No. 1445

Strictly comply with the documentary requirements to support the payments of the
purchased lots as prescribed under P.D. 1445 and COA Circular No. 2012-001.
5. The book balance of accounts receivables-customers amounting to P5.350 million
does not reconcile with the balance per aging schedule totaling P5.519 million with
a difference of P169,102.40

Require the Accounting and Commercial Sections to reconcile regularly the balances per
book and aging schedule. Effect necessary adjustments either in the book or aging
schedule to reconcile the balance of accounts receivables-customers.

6. P1.220 million or 28% of the total balance based on the aging schedule of the
accounts receivables-customers are considered inactive accounts and the same are
included as part of the current assets

Conduct a thorough investigation on the whereabouts of concessionaires whose accounts

were classified as dormant or inactive and determine as to its collectability of their
respective accounts. Further, direct the Accounting Section to reclassify the inactive
accounts as Other Assets. Also, submit a request for possible write-off of inactive
accounts with nil probability of collection to the Commission on Audit through
channels.

7. The district procured one unit of Isuzu 10W Tank Lorry via lease purchase
agreement from Orix Metro Leasing and Finance Corporation without securing
the required approval from the Secretary of Budget and Management as
prescribed in Paragraph 3.1 of Budget Circular No. 2010-2

Secure the required approval to purchase the Isuzu 10W Tank Lorry from the Secretary
of Budget and Management in compliance with Budget Circular No. 2010-2.

8. The rate of per diems paid to the Board of Directors effective April, 2012 was not
in accordance with the prescribed rate set by the Local Water Utilities
Administration (LWUA), thereby an overpayment was computed totaling
P131,520.00 for CY 2012

Effect adjustments of the rate of per diems to be paid to the BOD effective immediately
and require the concerned officers to refund the overpayment.

9. Reimbursements of travel expenses incurred by the members of the Board of

Directors totaling P77,629.71 were in excess of the allowable 25% of the actual per
diems received as prescribed in Executive Order No. 65

Observe strictly the pertinent provisions of E.O. No. 65 in approving payments of

reimbursable expenses to the board of directors which should not exceed 25% of the
actual per diems received for Regular and Special Board meetings.
10. Various claims of travel expenses totaling P168,682.46 for foreign travels of the
district official, division manager, and section head to attend international
conference in Bangkok, Thailand were not supported with the required authority
to travel abroad and without complying other conditions as detailed in the Office of
the President Memorandum Circular No. 7 series of 2010 and LWUA
Memorandum Circular No. 010-10

Strictly comply the conditions set as detailed in LWUA Memorandum Circular No. 010-
10 and Memorandum Circular No. 7 series of 2010 of the Office of the President in
sending participants to international conventions/conferences.

11. The district engaged and paid the services of a private legal counsel amounting to
P173,500.00 without the written concurrence by the Commission on Audit,
contrary to the provisions of COA Circular No. 86-225 dated April 2, 1986, and
Rule 9 of the 2011 Office of the Government Corporate Counsel (OGCC) Rules
and Regulations

Strictly comply with the provisions of COA Circular No. 86-225 particularly the
requirement to submit the retainership agreement with written conformity and
acquiescence of the Solicitor General or the Government Corporate Counsel to COA for
its written concurrence.

12. The district availed of the legal services rendered by a lawyer-personnel of the
Office of the Government Corporate Counsel and incurred monthly retainer’s fee
totalling P55,000.00, air fare and other traveling expenses amounting to P42,778.00
and P22,181.48, respectively, without the required supporting documents

Strictly observe the requirement of complete documentation in processing payments of

travel expenses in accordance with EO No. 248 and 298. Also, payments of monthly
retainer’s fee should be in accordance with the rates as prescribed in the general
provisions of the CY 2012 General Appropriations Act.

STATUS OF PRIOR YEARS’ AUDIT RECOMMENDATIONS

As to the status of CY 2009-2011 audit recommendations, our evaluation disclosed that

five recommendations were fully implemented, and one recommendation was partially
implemented as of December 31, 2012.